By Emanuela Barbiroglio,Richard Williams and Richard Hook
Space demand set to rocket
The industrial and logistics sector is set fair for a sustained period of growth if the upbeat sentiment of respondents to Property Week, Savills and db symmetry’s first-ever market census, in association with Analytiqa, is anything to go by.
A total of 425 professionals from across the sector took part in the survey, more than a quarter of whom were occupiers keen to have their say on the state of the market. Most notably, and encouragingly for the sector, was that more than half of occupiers that took part (55%) anticipate requiring more space over the next two years.
When put into context against a backdrop of record-breaking take-up in 2016, the response – which also included 37% expecting the same take-up – is a positive endorsement for the sector. Occupiers specified that their increased space requirement was predominantly (81%) due to an expected growth in their business.
Of those occupiers foreseeing greater space requirements over the next two years, their preference for location of expansion was evenly split geographically with extension of their current site, the golden triangle, the M1/M6 corridors, Greater London and Heathrow all considered potential growth spots.
Interestingly, the availability of labour wasn’t the biggest issue impacting occupiers. They ranked rising costs (50%), Brexit uncertainty (41%) and the state of the retail market (34%) as the three biggest factors affecting their businesses.
Occupiers’ positive sentiment on future demand for space was shared by all respondents. Overall 88% thought take-up this year would remain similar (58%) or increase (30%), compared with last year’s record total of 34.6m sq ft.
“With more than 400 respondents, a quarter of whom are occupiers, it is clear that sentiment remains largely positive in regards to the UK industrial and logistics sector,” says Richard Sullivan, national head of industrial & logistics at Savills.
“With 55% of occupiers envisaging the need for more space over the next two years, it is little wonder that 88% of those surveyed expect take-up to equal or surpass the record highs of 2016. There are still issues impacting the market, including rising costs, the state of the retail sector and the uncertainty surrounding Brexit, but it is important to note that labour didn’t rank as highly as anticipated, which is key to bringing new developments forward over the coming years.”
Perhaps unsurprisingly given the buoyant occupier market, the majority of developers and landowners surveyed said they had increased their landbanks in the past six months (47%).
However, developers and landowners are most concerned about the lack of development sites with 91% surveyed stating it was very important or important to them when considering a new industrial and logistics scheme. They were also troubled by the length of the planning process, with 77% suggesting that making the process more efficient was very important or important.
“While there is still much to be done to tackle the lack of supply and ongoing land constraints, the results of the survey confirm there is plenty to be optimistic about as we head into the last quarter of 2017 and beyond,” Sullivan adds.
The developers and landowners also consider power supply to potential new schemes as a top issue, with 74% saying it is very important or important to them. This is no doubt due to the growing influence of technology to the running of modern industrial and logistics facilities.
Warehouse automation is expected to have the biggest technological impact on the sector (71%), closely followed by warehouse robotics (68%) and predictive analytics (60%).
On the investment front, the majority of investors and asset managers (45%) believe investment levels will at least remain the same this year compared with the record-breaking volumes achieved in 2016 with 39% expecting investment in the sector to increase in 2017.
“Overall, these results indicate a very upbeat attitude to the state of the market, particularly when you consider that respondents were asked to give their answers in comparison to 2016, which was a record year for take-up and investment,” comments Christian Matthews, director at db symmetry.
“The industrial and distribution sector remains a hotbed for investment with an impressive 84% citing investment levels to be the same or better this year.
“As a developer that is delivering 17% of the UK’s total speculative development for 2017, these results make for encouraging reading and I’m sure will be well received by the market. We believe that these findings will act as a barometer of the industry’s performance in future years.”